As marketplace lending continues to mature, we are seeing more options to access this asset class. One of the major themes we’ve seen recently are new fund announcements and several funds set to launch in the US, joining the many funds in existence in the UK. However, none of the funds to date have been offered by the actual marketplace. Funding Circle will be the first company to create a fund for investors in the UK to invest in small business loans. Like other funds in this industry that have come before it, this will be a closed end fund.
The major appeal of investing through a fund for a retail investor is that they do not have to hand select loans. Many investors want a hands off approach and certainly the new Funding Circle SME Income Fund will accomplish that goal. Although all investors will be able to participate, the fund will be lead by institutional investors.
The Funding Circle SME Income Fund is raising £150 million ($229 million) and will invest in small businesses both in Britain and the United States. Shares will be offered at a price of £1.00 per ordinary share. The target dividend on the fund is estimated to be between 6-7% with the target NAV total return between 8-9% per annum. They plan to utilize leverage in the fund. There are no fund management or performance fees charged at the company level, but the standard 1% per annum Funding Circle platform fee will still apply.
Samir Desai, CEO of Funding Circle stated:
This will be the first fund to exclusively lend to small businesses through the Funding Circle marketplaces, and is a response to the huge demand we’re seeing from a wide range of investors for small business loans. Today marks an important step on our journey to creating a global marketplace where any investor, big or small, can lend to small businesses across the world.
It is likely that we will continue to see new fund offerings in the near future, but Funding Circle is paving the way by offering their own branded fund. This approach is how marketplace lending will be made available to the masses and likely will be how most retail investors eventually invest.